Bookkeeping – Complex Entries (Lesson 15)
Dual entries may have multiple lines of information, the key is that total debits must equal total credits. When there are more than two lines of data, it is referred to as a complex entry.
Many bookkeepers are initially misinformed about the dual entry accounting system. They think that based on the wording that accounting entries have only two lines of information, one line for a debit and a second line for a credit. What the words ‘dual entry’ mean is that debits must equal credits. Therefore, either or both values can have multiple lines of data. If multiple lines of three or more, the entry is called a complex entry.
This lesson is designed to illustrate this concept. Keep in mind that at the end of the entry all debits must equal credits.
The first illustration is a simple purchase of materials with a discount from the supplier, i.e. cash is paid. The entry is recorded in the purchases journal as follows:
Date Ledger Description DR CR
09/05/15 COS-Materials Lumber – Smith Job $100.00
Discounts Lumber – Smith 2.00
Cash Payment Lumber – Smith 98.00
Notice both debits and credits are equal. This is an example (simple example) of a complex entry.
Now let’s take a look at an entry where both debits and credits have multiple lines of data. In this example the company purchases two pieces of equipment from the same company and paid some cash and used a long-term loan for the balance:
FIXED ASSETS JOURNAL
Date Ledger Description DR CR
09/08/15 F/A – Equip Front End Loader 43,000
F/A Trans Loader Trailer 2T-4000 6,500
Cash Partial Payment 15,000
LT Debt Bal. of Payment 5/YR Note 34,500
Again, notice both debits and credits are equal? Also, both debits and credits have multiple lines of information and that the respective ledgers are different.
Now let’s complicate this some more and illustrate a highly complex entry with multiple lines of both sides with multiple ledgers (accounts) and some of the ledgers are the same. Here is an example of a payroll entry:
Date Ledger Description DR CR
09/10/15 COS – Labor Joe Smith 10 Hrs 100.00
P/R Tax Expense SS Match JS 6.20
P/R Tax Expense Medi Match JS 1.45
P/R Tax Expense FUTA/SUTA 1.10
P/R Tax Liability Fed Withholding JS 7.00
P/R Tax Liability SS W/H JS 6.20
P/R Tax Liability Medicare W/H JS 1.45
P/R Tax Liability State Income Taxes JS 3.00
P/R Tax Liability SS Match JS 6.20
P/R Tax Liability Medicare Match JS 1.45
P/R Tax Liability FUTA/SUTA Due JS 1.10
Cash – Payroll Acct Net Check #3108 JS 82.35
As stated before, both sides (debits and credits) are equal. Notice there are three payroll tax expense lines and seven payroll tax liability lines? This is done to keep the respective lines separated as each line is a function of a different tax.
With bookkeeping the payroll entry is usually the most complicated entry. It is rare to have a more complicated entry in a small business set of books.
This lesson teaches you that the dual entry system means that debits equal credits and the journal entry may have more than two lines of information. Multiple lines of entry even multiple lines for the same ledger account refers to a complex entry. ACT ON KNOWLEDGE.
Do you want to learn how to get returns like this?
Then learn about Value Investing. Value investing in the simplest of terms means to buy low and sell high. Value investing is defined as a systematic process of buying high quality stock at an undervalued market price quantified by intrinsic value and justified via financial analysis; then selling the stock in a timely manner upon market price recovery.
There are four key principles used with value investing. Each is required. They are:
- Risk Reduction – Buy only high quality stocks;
- Intrinsic Value – The underlying assets and operations are of good quality and performance;
- Financial Analysis – Use core financial information, business ratios and key performance indicators to create a high level of confidence that recovery is just a matter of time;
- Patience – Allow time to work for the investor.
If you are interested in learning more, go to the Membership Program page under Value Investing section in the header above.
Join the value investing club and learn about value investing and how you can easily acquire similar results with your investment fund. Upon joining, you’ll receive the book Value Investing with Business Ratios, a reference guide used with all the decision models you build. Each member goes through three distinct phases:
- Education – Introduction to value investing along with terminology used are explained. Key principles of value investing are covered via a series of lessons and tutorials.
- Development – Members are taught how pools of investments are developed by first learning about financial metrics and how to read financial statements. The member then uses existing models to grasp the core understanding of developing buy/sell triggers for high quality stocks.
- Sophistication – Most members reach this phase of understanding after about six months. Many members create their own pools of investments and share with others their knowledge. Members are introduced to more sophisticated types of investments and how to use them to reduce risk and improve, via leverage, overall returns for their value investment pools.
Each week, you receive an e-mail with a full update on the pools. Follow along as the Investment Fund grows. Start investing with confidence from what you learn. Create your own fund and over time, accumulate wealth. Joining entitles you to the following:
- Lessons about value investing and the principles involved;
- Free webinars from the author following up the lessons;
- Charts, graphs, tutorials, templates and resources to use when you create your own pool;
- Access to existing pools and their respective data models along with buy/sell triggers;
- Follow along with the investment fund and its weekly updates;
- White papers addressing financial principles and proper interpretation methods; AND
- Some simple good advice.